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The Real Reason Why Uber And Lyft Stocks Have Soared Nearly 50%

The Real Reason Why Uber And Lyft Stocks Have Soared Nearly 50%

Do Uber Technologies (NYSE:UBER) and Lyft Inc. (NASDAQ:LYFT) drivers deserve the usual employee benefits such as an hourly minimum wage, overtime, and paid sick days that so many other workers take for granted? 

The giant rideshare companies don’t think so--and apparently neither do the majority of Californians.

Uber and Lyft are celebrating after California voted to recognize their drivers as contractors and not employees, effectively meaning the gig workers can forget benefits such as minimum wage and health care.

Golden State voters have approved Proposition 22, a ballot proposition that exempts app-based transportation and delivery companies from providing employee benefits to drivers, with a 58-42 margin.

Understandably, Uber and Lyft executives are celebrating the victory as they look to replicate it in other states.

“Going forward, you will see us more loudly advocate for new laws like Prop 22, which we believe strike the balance between preserving the flexibility that drivers value so much, while adding protections that all gig workers deserve," Uber CEO Dara Khosrowshahi has told investors.

Quite tellingly, Uber is up 41% over the past five trading days alone despite reporting another huge loss in its latest quarterly earnings call while Lyft is up 49% over the timeframe.

Existential crisis

A year ago, California--widely acknowledged as the greenest state in the United States-- presented a tough conundrum for Uber and Lyft because the companies feared voters would elect to force them to classify their millions of drivers as employees and not meet contractors. A vote for Prop 22 would have created a major existential crisis for the two companies that are still printing red ink.

But on Election Day, California voters approved Proposition 22, a ballot measure bankrolled by Uber, Lyft, Instacart, Doordash and Postmates that affords their drivers certain perks but declares them as independent contractors. In effect, rideshare drivers in the state have been exempted from AB 5, a California law passed last year that declared gig workers in the “usual course” of a company’s business as employees. Prop 22 pulls means they won’t be entitled to perks such as an hourly minimum wage, overtime, paid sick days, and unemployment benefits. Instead, they will have to settle for a guaranteed minimum pay rate while they’re assigned tasks; health stipends if they work enough hours and a review process for terminations.

It’s a raw deal for drivers--but could potentially save the companies from bankruptcy.

An analysis  by the University of California at Berkeley has concluded that the proposition’s pay guarantee is actually worth less than $6 an hour after accounting for full expenses and wait times, less than half California’s minimum wage of $13 per hour. But that’s only part of it. Prop 22 also bars legislators from trying to change its new status quo unless their reforms are in line with Prop 22’s original intent and they have a seven-eighths supermajority.

Uber has an estimated 1 million drivers in the United States alone but only 30,000 employees, so you can imagine the implications on the bottomline had the vote gone against the company. With the latest result, however, the ride-hailing companies have bought themselves immunity from California’s employment reform.

A few days ago, Uber reported Q3 revenue of $2.81B (-20.4% Y/Y) while net loss totaled $1.1B with both metrics coming in below Wall Street’s consensus. Mobility revenue declined 53% to $1.37B vs $1.52B consensus while Delivery revenue gained 125% to $1.14B (consensus: $977.6M). Gross bookings were down 10% Y/Y to $14.7B; Mobility bookings were down 50% to $5.91B while Delivery bookings increased 135% to $8.55B. Mobility adjusted EBITDA fell $386M on the year to $245M while Delivery EBITDA improved $133M Y/Y to a loss of $183M.

With about a fifth of Uber’s drivers operating from California, the company can thank voters there for not putting it out of business.

By Alex Kimani for Safehaven

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